SYTE 10q filed. earnings are up:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-27763
(Commission file number)
SITESTAR CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 88-0397234
--------------------------------- --------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
16133 VENTURA BOULEVARD, SUITE 635, ENCINO, CA 91436
(Address of principal executive offices)
(818) 981-4519
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity. As of November 14, 2000 -
26,953,657 shares of Common Stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
SITESTAR CORPORATION
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2000 3-4
Condensed Consolidated Statements of Operations for
the three months ended September 30, 2000 and 1999
(Unaudited) 5
Condensed Consolidated Statements of Operations for
the nine months ended September 30, 2000 and 1999 (Unaudited) 6
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 2000 and 1999 (Unaudited) 7-8
Notes to Condensed Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Change in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
Part III. EXHIBITS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SITESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 77,455
Marketable securities 705,697
Accounts receivable, less allowance for
doubtful accounts of $140,000 142,199
Other current assets 68,822
---------------
Total current assets 994,173
PROPERTY AND EQUIPMENT, net 396,913
DEFERRED LOAN COSTS 271,565
CUSTOMER LIST, net 1,930,085
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED, net 2,358,621
INVESTMENTS 160,000
OTHER ASSETS 16,045
---------------
TOTAL ASSETS $ 6,127,402
===============
See the accompanying notes to the consolidated financial statements
3
SITESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, Continued
SEPTEMBER 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 195,604
Accrued expenses 201,066
Deferred revenue 121,309
Due to stockholder 20,000
Convertible debenture 985,000
Note payable - stockholders, current portion 233,025
Notes payable, current portion 72,050
Capital lease obligations, current portion 49,185
---------------
Total current liabilities 1,877,239
NOTES PAYABLE - STOCKHOLDERS, less current portion 53,884
NOTES PAYABLE, less current portion 422,823
CAPITAL LEASE OBLIGATIONS, less current portion 10,068
---------------
TOTAL LIABILITIES 2,364,014
---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value, 10,000,000 shares
authorized, 0 shares issued and outstanding -
Common Stock, $.001 par value, 75,000,000 shares
authorized, 25,735,816 shares issued and outstanding 25,736
Additional paid-in capital 9,127,327
Accumulated deficit (5,389,675)
---------------
Total stockholders' equity 3,763,388
---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,127,402
===============
See the accompanying notes to the consolidated financial statements
4
SITESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
--------------- ---------------
REVENUE $ 474,387 $ 18,684
COST OF REVENUE 203,082 22,740
--------------- ---------------
GROSS PROFIT (LOSS) 271,305 (4,056)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 743,710 2,094,687
LOSS (GAIN) FROM OPERATIONS OF BUSINESS
TRANSFERRED UNDER CONTRACTUAL
OBLIGATIONS - (53,223)
--------------- ----------------
LOSS FROM OPERATIONS (472,405) (2,045,520)
OTHER INCOME (EXPENSES)
Gain on sale of assets - -
Increase in market value of marketable securities 30,697 -
Interest expense (149,445) (11,772)
---------------- ----------------
LOSS BEFORE INCOME TAXES (591,153) (2,057,292)
INCOME TAXES - -
--------------- ---------------
NET LOSS $ (591,153) $ (2,057,292)
================ ================
BASIC AND DILUTED LOSS PER SHARE $ (0.02) $ (0.11)
=============== ================
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC AND DILUTED 24,999,007 18,600,036
=============== ===============
See the accompanying notes to the consolidated financial statements
5
SITESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
--------------- ---------------
REVENUE $ 1,290,774 $ 18,684
COST OF REVENUE 639,467 22,740
--------------- ---------------
GROSS PROFIT (LOSS) 651,307 (4,056)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,090,377 2,198,517
LOSS FROM OPERATIONS OF BUSINESS
TRANSFERRED UNDER CONTRACTUAL
OBLIGATIONS 42,233 40,786
--------------- ---------------
LOSS FROM OPERATIONS (1,481,303) (2,243,359)
OTHER INCOME (EXPENSES)
Gain on sale of assets 363,831 -
Increase in market value of marketable securities 30,697 -
Interest expense (252,648) (11,772)
---------------- ----------------
LOSS BEFORE INCOME TAXES (1,339,423) (2,255,131)
INCOME TAXES - -
--------------- ---------------
NET LOSS $ (1,339,423) $ (2,255,131)
================ ================
BASIC AND DILUTED LOSS PER SHARE $ (0.05) $ (0.12)
=============== ================
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC AND DILUTED 24,507,376 18,600,036
=============== ===============
See the accompanying notes to the consolidated financial statements
6
SITESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,339,423) $ (2,255,131)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization expense 1,147,082 8,273
Compensation expense paid by principal shareholders 2,000,000
Amortization of debt financing costs 148,792 -
Gain on the sale of assets (363,831) -
Increase in market value of marketable securities (30,697)
Loss from operations of business transferred under
contractual arrangements 42,233 40,786
Stock issued in lieu of compensation
and professional fees 224,313 -
(Increase) decrease in:
Accounts receivable (7,925) -
Other assets 2,801 -
Increase (decrease) in:
Accounts payable and accrued expenses 102,429 (149,137)
Deferred revenue (37,650) -
Advances from stockholder - 27,000
--------------- ---------------
Net cash used in operating activities (111,876) (328,209)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (26,446) (5,830)
Purchase of marketable securities (675,000) (75,000)
Proceeds from sale of assets 34,703 -
--------------- ---------------
Net cash used in investing activities (666,743) (80,830)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in book overdraft - 36,973
Advances from stockholder, net 24,450 215,696
Proceeds from notes payable - 416,309
Proceeds from convertible debenture 1,000,000 -
Proceeds from capital contributions 155,671
Payment of loan fees (110,000) -
Repayment of notes payable (45,719) (354,218)
Repayment of notes payable - stockholders (20,479) -
Payment on capital lease obligation (37,506) (6,583)
--------------- ----------------
Net cash provided by financing activities 810,746 463,848
--------------- ---------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 32,127 54,809
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 45,328 -
--------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 77,455 $ 54,809
=============== ================
See the accompanying notes to the consolidated financial statements
7
SITESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (continued)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the nine months ended September 30, 2000 and 1999, the Company paid no income taxes and interest of approximately
$74,000 and $11,700, respectively.
NON-CASH INVESTING AND FINANCING TRANSCATIONS:
During the nine months ended September 30, 2000, the Company converted $471,372 of debt, which includes $224,313 of
compensation and professional services, into 1,575,990 shares of the Company's common stock.
See the accompanying notes to the consolidated financial statements
8
SITESTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements have been prepared by Sitestar Corporation (the "Company" or
"Sitestar"), pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein
reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management,
necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The results of the nine months ended September 30, 2000
are not necessarily indicative of the results to be expected for the full year ending December 31, 2000.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share." SFAS No. 128 replaced the previously reported primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects
of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted
earnings per share. Basic earnings per share is computed using the weighted-average number of common shares outstanding
during the period. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. There are no
common stock equivalents.
NOTE 3 - SALE OF ASSETS
On September 30, 1999, the Company sold all of the assets related to the Company's international food distribution business,
also known as Holland American International Specialties ("HAIS"). The acquirer of the assets is a partnership with the
partners being a group of stockholders of the Company. Given that the sale was not an arms-length transaction, the Company
had the business valued by an independent appraiser to determine the fair value purchase price. The sales price was $900,000,
which is to be paid as follows: 1) $200,000 is to be offset against the Company's liability to the a stockholder, 2) $654,000 for
the buyer's assumption of all trade, short-term and long-term liabilities, and 3) the remaining $46,000 in the form of a note
payable to the Company in six annual installments of $15,333 each plus accrued interest at 8% per annum. The Company was
required to defer the gain on this sale until such time as the purchasers are able to refinance the debt of HAIS. During the 2nd
quarter of 2000 the purchasers were able to refinance the debt and the Company has recognized a $314,515 gain on the sale of
HAIS.
In January 2000, the Company sold certain assets and liabilities of its wholly owned subsidiary, Sitestar, Inc. for $34,703 in cash
plus a note receivable in the amount of $10,000. The Company recognized a gain on sale of these certain assets of $49,316.
The Company retained the "Sitestar" trademark and "Sitestar.com" URL.
9
SITESTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
NOTE 4 - CONVERTIBLE DEBENTURE
On May 11, 2000 the Company issued two convertible debentures aggregating $500,000. The debentures bear interest at 12%
per annum and are due on May 1, 2001. The debentures are convertible into common stock at a rate equal to the lowest of $.70
or 60% of the average of the three lowest closing bid price for the common stock during the 20 trading days immediately
preceding the conversion date. In addition, the Company also issued three-year warrants to purchase an aggregate of 250,000
shares of common stock at an initial exercise price of $0.77 per share. Due to the preferential conversion feature of these
debentures the Company will capitalize $242,857 (which represents the value of additional shares issuable upon conversion at
the $.70 conversion price verses the number of shares issuable upon conversion at the market value at the date of issuance) as
debt issuance costs and amortize this amount over the term of the debentures. In addition, the warrants issued in connection
with these debentures have an exercise price below the market value of the Company's stock on the date of issuance,
therefore the Company will capitalize an additional $67,500 (which represents the difference in the market value at the date of
issuance less the $.77 exercise price times the number of warrants issued) of debt issuance costs associated with the issuance
of the 250,000 warrants that will be amortized over the term of these debentures.
The Company and the above debenture holders have also agreed that, upon the declaration of effectiveness of the Registration
Statement to be filed pursuant to the Registration Rights Agreement, provided that the trading price of the Common Stock is at
least $1.00 for the ten (10) consecutive trading days immediately preceding the Effective Date, the debenture holders will be
obligated to purchase, and the Company shall be obligated to sell and issue to the debenture holders, additional debentures in the
aggregate principal amount of Five Hundred Thousand ($500,000) and additional warrants to purchase an aggregate of 250,000
shares of Common Stock for an aggregate purchase price of Five Hundred Thousand Dollars ($500,000), with the closing of |
